AIReF forecasts that Spain will enter a recession in the fourth quarter of 2022 and the first of 2023

curves are coming The independent fiscal responsibility authority (Airef) estimates that in the third quarter of this year the Spanish economy could suffer a stagnation, with an evolution close to zero, waiting to know the official figure this Friday, and enter the fourth quarter of 2022 and the first of 2023 in negative territory, the team led by Cristina Herrero has pointed out.

Thomas Osborne
Thomas Osborne
25 October 2022 Tuesday 05:44
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AIReF forecasts that Spain will enter a recession in the fourth quarter of 2022 and the first of 2023

curves are coming The independent fiscal responsibility authority (Airef) estimates that in the third quarter of this year the Spanish economy could suffer a stagnation, with an evolution close to zero, waiting to know the official figure this Friday, and enter the fourth quarter of 2022 and the first of 2023 in negative territory, the team led by Cristina Herrero has pointed out.

Asked about the specific figures, the independent authority has specified that the Spanish economy would have an evolution of -0.2% or -0.3% in the fourth quarter of this year and the same figure in the first of 2023, always according to its forecasts, subject to great uncertainty. Both data could be even worse since, as the independent authority warns, the economic deterioration in Europe is being very intense.

These numbers would mean a technical recession in Spain since, according to the consensus of monetary theory, it would occur if two quarters without growth were chained together. The Airef does not agree, however, that falling a few tenths can be considered a recession itself, adding that other types of indicators that are positive should be considered. "It will be very difficult for the Spanish economy to escape" from this situation, the budget supervisor has warned. The Government has always defended that a scenario of technical recession does not contemplate it.

Airef's overall view of the budget bill and the budget plan is harsh. After endorsing the macroeconomic picture, the supervisory body concludes that it harbors "discrepancies" with the Government regarding "a lower real growth forecast" for this year and next. Specifically, the independent authority forecasts growth of 1.5% compared to 2.1% in 2022 and the aforementioned gloomy outlook for 2023.

Inflation will remain persistent next year. Airef estimates an increase in prices greater than what the Government foresees. Specifically, it expects a rise of 3.9% in 2023 and a growth of the GDP deflator of 4.3%. The authority warns of subjacent inflation that is still high in the coming months, supported by the progressive transfer of increases in costs to prices and by an acceleration in wages for employees that could reach an average of 5.8% over the throughout the next year. The independent authority appreciates, however, that wages are currently showing a contained behavior that is leading to a "notable loss of purchasing power" that conditions the prospects for household spending. Families have less to spend and that affects the economic evolution in the last quarters of this year, in short.

In relation to the Government's macroeconomic forecasts, "lack of realism" has been the term that has been repeated the most by the president of Airef, Cristina Herrero, and her team during the presentation of the report on the fundamental lines of the budget bill that are in parliamentary process. The public accounts approved by the Council of Ministers are not credible in the section on income or expenditure, insists the supervisory body, just a week after Herrero's appearance in the budget committee of Congress.

Regarding the public income contemplated in the budgets, the Airef defines the Government's forecasts as "unrealistic" because the evolution contemplated for the tax figures does not correspond to the reality registered in the first three quarters. Specifically, the Treasury expects to reach a tax revenue figure of 262,000 million next year, 7.7% more than in 2022. The independent authority believes that it is too optimistic.

The independent authority also focuses on the "lack of realism" in the part of the expenditure contemplated in the budget bill. The reason is that the Government does not contemplate in it the more than likely extension of extraordinary measures to combat inflation and the increase in energy prices. In fact, the regulation under parliamentary process does not include the extension of the VAT reduction on electricity and gas or the rebate per liter of fuel. Yes, the Treasury does in the budget plan sent to Brussels on October 15 through what it calls "scenario two."

In the absence of fiscal rules, Airef confirms that the framework is in place to keep them suspended. However, the independent authority demands from the Government a "credible and gradual debt reduction path", which is a "pending exercise". The independent authority warns the Government that, given the temporary nature of the anti-crisis measures, the margin for reducing the deficit will run out in the medium term and that, therefore, without additional proposals, the pace of debt reduction will slow down in relation to GDP and will even stabilize at 108.8% of GDP. If the Government, in addition, extends the measures in force, the growth in spending would stand at 6.5%.

The scenario is very changeable, has warned Airef, whose main conclusion about the economic situation is that a "global weakening of growth" is taking place, which affects all countries, including Spain, and that "we are witnessing a race to down” in economic forecasts.